If you have a lump sum of money in your hand, investing them in a regular savings account can earn only a little. Whereas when you want to utilise it and invest in something that can yield you more, then the fixed deposit is the best option for you. The Return On Investment (ROI) will be very high with a fixed deposit than in a savings account.
Why invest in a Fixed Deposit?
Fixed deposit is the best investment option with a secured investment and higher return. When you want to have a safer way to invest your hard-earned money and get higher returns with a high-interest rate. A fixed deposit is a risk-free investment that doesn’t depend on the market for its profits. The high-interest rate fixed deposit has a with flexible tenure options which you can opt according to your financial stability.
Fixed deposit is of two types: Cumulative and Non-Cumulative. A cumulative FD is a deposit for which you will get both your interest and amount invested at the end of maturity. Whereas in a non-cumulative FD you get interest payouts at regular intervals depending upon your financial needs and the amount invested will be given at the end of the tenure.
Fixed Deposits are reasonably safe:
Whether you invest in a bank or NBFC, they have strict rules and regulations which they follow according to the Reserve Bank of India. The Indian financial institutions are reasonably safe with assured safety on your principal investment. Deposits that are rated with CRISIL (Credit Rating Information Services of India Limited) are very safe and secured; you won’t lose your capital at any time during the tenure.
Insurance of deposits up to Rs.1 Lakh:
Some banks and NBFCs offer you insurance up to Rs.1 Lakh when you choose a fixed deposit which offers that scheme. Though the insurance amount is low if you have invested a considerable amount you can consider splitting up into smaller FDs which can give you Rs.1 Lakh insurance for each deposit. You can invest FD in your name or have a joint account with a family member.
Safest investment for a senior citizen:
When you are a retired person or senior citizen without any source of steady income, then FD is the best option which will help you a lot. Fixed deposits offer stable returns to those people and also have your invested amount safe. With a non-cumulative FD, when you are a senior citizen, you can get interest rates on a regular frequency which can help your financial needs also secure your investment amount.
You can withdraw your FDs before maturity with minimal loses:
With a fixed deposit, you can earn higher rate interest which will also have your deposited amount safe till the tenure end. When you want to withdraw your fixed deposit before the end of the tenure, you will be charged with slight penalties still there is always an option that can help. Your principal amount will never be affected in such situations. Other than tax saving FD, you can withdraw other FDs before maturity with a specific penalty. But there will be a loss of interest for the tenure after your withdrawal.
Loan against FD:
When you are in such emergencies which will need you to withdraw your fixed, you can try to get a loan against your FD instead of removing it. In that case, you will keep on earning interest for your fixed deposit also get a credit which can help your current financial situation with a low-interest loan. Your fixed deposit will act as collateral for the loan you are opting without breaking it and losing its interest rates.
Tax saving Fixed Deposit:
When you are ready to invest your surplus funds for a long tenure, then you can consider investing in a tax saving FD. Usually, these FDs have a tenure of 5 years, and for that period your money will be locked down and cannot be withdrawn. You cannot break that fixed deposit before maturity and cannot get a loan against it.
The principal amount which you invest in this FD is not taxable. The interest which you gain out of it will be taxable according to your tax slab. Also, when the deposit amounts up to Rs. 1.5 Lakh will be entitled to tax deduction under Section 80C of the Income Tax Act. You can have more than one tax saver FD in different financial institutions. You can compare all the institutions which are offering it and get the one which best suits your requirements.
Senior citizens gain more:
Compared to ordinary people, senior citizens will have additional interest hike for their fixed deposits. Also, when it comes to taxation, they have a lot of exemptions as their tax limits are higher than others. However, they should provide a duly filled Form 15H for making sure there is no TDS deducted on the interest gained for the deposit amount.
Earn more with compounded FD:
When compared to non-cumulative fixed deposits, a cumulative fixed deposit will be beneficial. Both banks and NBFCs offer both cumulative and non-cumulative fixed deposits. A cumulative fixed deposit is where you will get both your interest earned and the sum you have invested together in the maturity. In a non-cumulative, you will have a sequence of payouts of your interest rates which may be monthly, quarterly, half-yearly or annually.
Choosing a non-cumulative fixed deposit will make you lose your interests which you gain. Whereas when you choose a cumulative fixed deposit, both your interest earned and the sum invested will grow together and give you a higher sum at the maturity. It is also known as the accumulation of wealth – it will be beneficial as you will start earning more than what you can get out of a non-cumulative fixed deposit.
With the above benefits, we can see why a fixed deposit is the best investment scheme with a rather higher Return On Investment (ROI). As they are strictly governed by the regulations of the Reserve Bank of India, it is considered the best investment option for all types of investors. It is also the very best option because it is a risk-free investment as it doesn’t depend on the market for any of its returns, unlike other financial products.